- As of mid-October, the price of Bitcoin
had already surged from over $16,000 at the beginning of 2023 to over $28,000 and is currently above $43,000.
- The Bitcoin peak in 2017, reaching approximately $20,000, was overshadowed by the peak in 2021, reaching approximately $70,000.
- Since the SEC rejected applications for GBTC to be listed as an ETF on an exchange, its shares are not continuously redeemable or creatable for Bitcoin.
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The price of Bitcoin gained momentum in 2023 with rumors, providing profits to investors: So, what will happen next in the market?
Bitcoin Price Gains Momentum in 2023 Amid Rumors
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Bitcoin may be a relatively new technology, but it can still follow some fairly old market principles. In October, suggestions emerged in posts from X (formerly known as Twitter) that the U.S. Securities and Exchange Commission (SEC) had finally approved the listing of a BlackRock exchange-traded fund (ETF) directly tracking the Bitcoin price. However, this quickly proved to be inaccurate. The SEC postponed decisions on these spot ETFs, with some significant deadlines now set for 2024.
Yet, in a year that saw many challenges for the cryptocurrency, such as the trial of FTX founder Sam Bankman-Fried and government measures against several major players, there was a growing momentum towards regulatory approval for spot Bitcoin ETFs, filling the market with hope that it might finally happen. By mid-October, the price of Bitcoin had already surged from over $16,000 at the beginning of 2023 to over $28,000 and is currently above $43,000.
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“We’ve seen ETF approval priced in already,” says Clara Medalie, Research Director at crypto market data provider Kaiko. Now the question is, can Bitcoin follow an old Wall Street adage in 2024? If it was bought on the rumor this year, can it be sold on the news next year?
Typical caution is always in order for any bet on Washington. While recent indications from documents published on the SEC’s website suggest that companies trying to list spot Bitcoin ETFs have been meeting with regulators to secure decisions by specific deadlines, there are signs that some technical complexities may arise regarding whether stocks are truly created and redeemed in Bitcoin.
Launching an ETF may not guarantee a price increase
However, beyond this, launching ETFs will not necessarily guarantee a definite increase in the price of Bitcoin. This has happened before: previous launches of products expanding the investment potential of Bitcoin in the U.S., such as the launch of Bitcoin futures in 2017 and the first Bitcoin futures ETF in 2021, exhibited classic “buy the rumor, sell the news” patterns, often occurring at market peaks.
Of course, the past is not always a guarantee of the future, especially for evolving technology. The Bitcoin peak in 2017, at around $20,000, was overshadowed by the peak in 2021, reaching approximately $70,000. Other factors that could support Bitcoin’s price in 2024 include anticipated factors like the halving of miners’ rewards, limiting the current supply. The emergence of spot ETFs, similar to traditional gold or other physical commodity purchases, may be even more crucial than futures launches.
However, some market factors need to be considered. One of these is the role of the Grayscale Bitcoin Trust (GBTC). GBTC is a publicly traded entity with approximately $27 billion in assets under management. As of the end of fall, according to a regulatory filing, the trust holds about 3.2% of all circulating Bitcoin.
Since the SEC rejected applications for GBTC to be listed as an ETF on an exchange, its shares are not continuously redeemable or creatable for Bitcoin. This is an explanation of how an ETF’s shares should stay close to the underlying asset’s price. The result of this situation may lead to a deviation of GBTC shares’ price from the value of Bitcoin.
GBTC discount narrowed throughout the year
Earlier this year, GBTC shares were trading at over a 45% discount to the value of Bitcoin. However, this gap narrowed, especially as expectations grew for a transition to an ETF in the future, and recently stayed below 10%. GBTC shares increased fourfold this year, significantly outpacing Bitcoin itself.
Now, a fundamental discussion for the coming year is to what extent investors will want to buy or not buy GBTC when it becomes an ETF. This, if there is more demand, could lead to the creation of new shares and increased demand for Bitcoin. However, sufficient selling could also put pressure on Bitcoin.
An actively traded market for an ETF does not necessarily mandate the creation and redemption of underlying shares, buying and selling fundamental Bitcoin. Trading firms supporting the market for the GBTC ETF can also trade on the secondary stock market. Therefore, even with an increase in volume in GBTC, this does not necessarily mean there will be corresponding movements in the fundamental Bitcoin market.
David LaValle, Global Head of ETFs at Grayscale Investments, says, “The secondary market for GBTC is a one-of-a-kind Bitcoin product globally.” There have already been increases in volume in GBTC this year, such as when a federal appeals court announced in August that it would reconsider the SEC’s rejection of an ETF. Some investors may have cashed in their gains, potentially reducing future selling pressure. However, others may have bought in early, believing in the future ETF, front-running future demand.
Despite the price rally, trading volume and market depth in Bitcoin have remained relatively thin and have fallen since the recent FTX crash, according to a recent research note by Kaiko. Kaiko analysts wrote: “An ETF approval could change that.” Deeper liquidity can also reduce volatility and price movements. Many in the industry argue that an ETF could be a significant new source of demand for any listed spot ETF, compared to the often-mature patterns seen with futures launches.
According to a survey conducted from February to April by the Journal of Financial Planning and the Financial Planning Association, about 3% of participants planned to increase recommendations or use of cryptocurrencies next year. Perhaps this has grown this year and increased compared to 1% in 2019. However, notably, ETFs were expected to see the biggest increase overall. Therefore, what we will learn next year is whether a new technology packaged in an old form can change the scenario for Bitcoin.